A key way that inventors generate revenue from their technology patents, particularly those having to do with communication, is via FRAND (fair, reasonable, and non-discriminatory) licensing through a standard setting organization (SSO). For several years though, it has been nearly impossible for license holders to obtain injunctions against infringers, due to policy changes implemented by the Patent Office and Department of Justice.
But as of December 2018, the federal government has once again opened the door on granting injunctions in certain cases—though this will likely require the assistance of an experienced patent attorney to prove your point. However, for inventors who are just exploring the potential of licensing their patents, or those have been accused of infringing on a tech standard, it’s necessary to take a step back and explain the lay of the land.
Today, we have standards for almost everything, in large part due to patent holders willing to license their patents at a fair price.
In the middle of some home maintenance, have you ever dug into a toolbox for bolt and nut, screwed them together to make sure they fit, and then realized that they fit together perfectly despite the fact they were purchased in different stores, years or even decades apart? Well, you probably haven’t reflected on that. But you should. The only reason that we can take this sort of compatibility for granted is because, in the case of a nut and bolt, they adhere to the same threading standards. Set decades ago, these standards mandate the size and distance between threads.
Standard setting began in the early 20th century, with some government agencies collaborating with private trade groups to figure out things like, for instance, how to make a bolt fit a nut. If you take a minute to imagine a world where every manufacturer made their products without any regard for the products created by other manufacturers, you quickly begin to realize the motive for using standards.
Today, the primary government agency that manages and enforces standards is the National Institute for Standards and Technology (NIST). They work closely with a private nonprofit company, the American National Standards Institute (ANSI). ANSI is a standard setting organization (SSO) that allows patent holders to offer their technology as a standard by stating fair, reasonable, and non-discriminatory (FRAND) licensing terms, both publicly and in writing.
So, if you come up with an amazing communications technology, such as Bluetooth or Wi-Fi, you can offer it up to an SSO to be used as a standard. If your technology is adopted for use, you stand to make a lot of money. But obviously, there will be instances where different inventors have competing standards that differ in the details of their functionality but compete with one another in terms of what they accomplish—two ways for a wireless mouse to communicate with a dongle in a USB port, or two concepts for a successor to USB or HDMI. When situations arise where ANSI must choose between two standards, it brings together a group of stakeholders to figure out what standard is best. The ‘winner’ is adopted as a standard and made widely available for licensing.
But if you successfully have your invention adopted as a FRAND standard, and someone uses it without licensing it, what then?
Historically, if someone used a patented FRAND technology without securing a licensing agreement, a federal court had two options. The first was requiring the infringer to pay royalties as though they had licensed the technology. Essentially, retroactively compelling them to enter into a licensing agreement and ‘catching up’ on what they owed.
The second option was to enter an injunction prohibiting the alleged infringer from using the patented technology. However, the U.S. Supreme Court stated in eBay Inc. v. MercExchange L.L.C. that an injunction could only be issued when certain conditions were met:
- That the patent holder has suffered an irreparable injury
- That other remedies were inadequate for rendering proper compensation for the injury
- That considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted.
- That the public interest would not be disserved by a permanent injunction.
Prior to the case, MercExchange had licensed a patent to eBay so that it could offer the “Buy it Now” option. eBay entered negotiations with MercExchange to buy the patent, but when negotiations broke down, MercExchange sued eBay. After the former won, it sought an injunction against eBay in an attempt to block further use of the “Buy it Now” option. Ultimately, the case made its way to the SCOTUS, where the justices unanimously found against MercExchange.
While the rationales of the various justices differed, four justices succinctly summarized a key concern regarding injunctions:
“…an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent.”
While there have been circumstances where an injunction was called for under most historical standards, the federal government appeared to take the Supreme Court’s perspective to heart. In 2013, the USPTO and the Department of Justice issued a joint policy statement which stated that when an alleged infringer was open to licensing under FRAND terms, an injunction would not serve the public interest. This effectively set aside the test that the SCOTUS had supplied in the 2006 case, instead issuing what amounted to a blanket ban on injunctions. As a result, it was nearly impossible to get an injunction in an SSO patent infringement case.
But in December 2018, the DOJ rescinded this policy statement, stating that there are times when an injunction is warranted.
While speaking at the 19th Annual Berkeley-Stanford Advanced Patent Law Institute on December 7th, Assistance Attorney General Makan Dalrahim announced that the DOJ was rescinding the 2013 joint policy statement. According to Dalrahim, in his view, the policy was widely misunderstood, and prevented injunctions from being issued in cases where they were warranted and would have been largely beneficial.
While he did not cite any particular case in his statement, the hypothetical examples he used largely characterized historical ways that SSOs had colluded in certain markets. In his remarks, Delrahim noted his “concerns that standard-setting organizations have been given too little scrutiny when they have acted as a forum to slow down, rather than to facilitate, the adoption of disruptive innovations.”
In fact, Delrahim framed his decision as one that would help those who want to innovate alternatives to current standards. But the idea of getting a trade association to accept a standard without their participation in creating the standard seems unlikely. However, Delrahim acknowledged this issue, and stated that the DOJ would investigate how SSOs choose what standards they select in order to ensure that antitrust laws are not broken.
This announcement has turned the status quo concerning SSOs on its head. In the past, there has been the potential for would-be standards to be quashed because of decision-making stakeholders in SSOs who would be impacted if a new standard was adopted. After all, if your company has made billions off a Wi-Fi standard, and you recognized that a new Wi-Fi technology would supplant your own, you would do everything you could to prevent that technology from becoming a new standard for Wi-Fi. Who can say how many revolutionary standards for nuts and bolts fell by the wayside a century ago, because of the interests of existing manufacturers?
But under the DOJ’s new approach, grassroots standards would come from the ground up and be adopted based on their merits, without regard to stakeholders with contrary positions. If, for instance, someone comes up with a new patented Wi-Fi standard, and works closely with a patent attorney to develop a patent strategy that sufficiently locks out competitors, they have a good chance of succeeding on their own merits. It may well be that inventors will now be free to operate on their own wavelength, so to speak.